It's still good! It's still good! Part 2: Government Assistance

A hallmark of left-wing politics has been an ever-expansive system of government assistance. These encompass programs such as welfare, Social Security, Medicare, and Medicaid. The purpose behind these programs is noble enough: help those who cannot help themselves. They have proven, however, to not be financially viable in the long term and have not been shown to produce a positive net effect.

The left's solution to government assistance is the same as its solution to education: more money. Nothing is being done to address what causes the need for these programs: lack of education, low personal savings, and skyrocketing medical costs. There is no real plan to reduce the need for these programs or encourage more personal responsibility. Instead, it's another case of maintaining the status quo, treating the existing programs as the only way out. It's no wonder these proponents staunchly stick by the "more money" mantra: the only tool they have is a hammer, so every problem resembles a nail.

Nowhere can we see a bigger failure to help the poor than with our nation's welfare system. Poverty rates have stayed flat since Lyndon Johnson delcared his war on poverty in 1964, a war that has cost trillions of dollars with no net effect. Other things have remained constant. As a group, welfare recipients have low levels of education, are unmarried, and have children. The vast majority, over 90%, are female. The stereotyped images of high-school dropout single moms aren't too far off the mark. Welfare, however, isn't aimed at preventing the very things that cause the need: poor education, absentee fathers, and teen pregnancy. Instead of trying to fix the problems, the system is designed around treating the symptoms with handouts. These kinds of symptom-based treatments don't make for good public policy.

Medicare and Medicaid are also in a sad state. As a fellow Utah blogger points out, the costs of these programs has been rising much faster than the pace of population growth and inflation. This isn't helped by expansions of these programs such as the recent prescription drug coverage. These systems are also the targets of almost constant fraud and misuse which drive the costs even higher. Pile onto this the rising medical costs for everyone and we have a perfect storm of unsustainable spending growth looming in the not-to-distant future. Just look at some of the projections from the GAO. It's hard to consider a program to be successful when it requires an ever-increasing share of GDP to remain sustainable. The runaway spending means these programs are failing to solve the problems of being uninsured or provide proper care for seniors.

Social Security has been ailing for decades, the product of bad planning and poor spending habits. To understand why Social Security doesn't work, you have to understand what exactly the "trust fund" is: a big stack of IOUs. In the early days of Social Security, few were collecting benefits but many were paying into the system. Despite the claims of a "trust fund" Congress spent down that extra money as fast as it flowed into the coffers. Then people started retiring. Now we're in a situation where the IOUs being paid out are about to exceed the money flowing into the "trust fund". What we're left with is a lesson in how little restraint Congress has and how poorly they will keep their promises.

So what can be done about welfare? It doesn't solve the poverty problem, and it does nothing to prevent the growth of its biggest collecting class. With such a poor track record, pumping more money into this pig just isn't viable. No, we need to refocus those moneys into other areas to strike at the roots and not the branches. Cut or eliminate taxes on necessities such as food and medicine, letting those living paycheck-to-paycheck keep more of what they earn. Put more emphasis into collecting funds from deadbeat dads. Give states the latitude to establish local teenage pregnancy prevention programs. Provide more "second chance" education opportunies. Without proper education, recipients can't get into jobs that pay well. These same jobs can offer the benefits of telecommuting including spending more time at home with the children and eliminating the need for daycare.

Medicare can be heavily reduced or eliminated through better personal responsibility. One of the smartest things in medicine I've seen are medical savings plans. The idea is very simple: put away money in a special savings account for medical purposes and join that with a high-deductible insurance policy to cover you in the case of major illness. It costs about the same as traditional health care, but you're stashing money into an account that builds up on a tax-free basis for medical expenses. You make a lot of contributions when you're young and healthy so that when you're older and not so healthy, you have a large safety net to carry you through on your own money. Employers can reduce the cost of their insurance plans substantially using such a system and would be better able to offer insurance to more employees. If we can start encouraging more employers and employees to participate in this program, we may see some long-term reductions in our spending.

The biggest problem with this shift is simple demographics: seniors vote in large blocks to keep Medicare rolling, and they are comprising a growing segment of the population. Many of them did not have the benefit of a medical savings account and did not plan for a day when Medicare would simply be too expensive to maintain. The sad truth is that they are forcing future generations to work harder to provide these benefits, and the debt left from this excess of spending could still be around when their grandchildren would be their age.

We're also faced with another problem: getting participants to stay the course. The effects of medical savings accounts could take 10, 20, even up to 40 years to start making a large difference in the cost of Medicare. In our age of instant gratification and political shills willing to call something a failure after a single session of Congress, it would be hard to maintain a MSA program for that length of time and the calls of "failure" would be almost instant.

Medicaid is harder to tackle. A great idea (hat tip to my wife) is to require a small co-pay for all visits, something small like $10. This would discourage over-use, defray costs, and still be small enough that those in need could probably find the money for it. I believe that requiring an eventual repayment (depending on economic circumstances) isn't out of the question either. Even more importantly, we need to eliminate the nationalization of this program. This would eliminate many layers of bureaucracy that inflate the costs and stifle individual innovations, even with the innovation of block grants to the states.

Above all, we must work to eliminate the need for this program. I think that MSAs can make a difference here, especially if they lower costs for employers who in turn offer coverage to more employees. Let's encourage that by letting employers as well as employees write-off their contributions to MSAs. I think that many of the solutions to our welfare program can apply here as well: many of those receiving welfare are also on Medicaid, so we can kill two birds with one stone.

Social Security is going to be the hardest program to fix because the fix is to kill it. It was meant to be a last resort for retirees who were unable to save. Instead, it's been treated as the only savings needed, so many have purposefully planned to not save. This irr
esponsibility has lead to a looming shortfall that would have to be made up through cut benefits, increased taxes, or borrowing from other tax revenues.

There are a few immediate remedies we need right now. Eliminate the benefit for anyone earning over triple the poverty level. If you've properly saved, you don't need the benefit, and it was never guaranteed to be there. Raise the retirement age to 70 or 75 sooner rather than later. Having it creep up over a span of a decade is a politically expedient way to delay the fallout with constituents until after an election, and retiring at 65 is becoming more and more rare. We need to make sure costs are contained now.

If we can cut the costs of Social Security now, we can move towards phasing out the program. Those under 45 should be put on notice that Social Security will not be around when they retire so they can start saving more now. Increase the limits for IRA, 401(k), and other contribution plans to allow us to save more. Most important, put care for the indigent into the hands of state and local officials, the ones who are best able to respond to individual needs should someone slip through the cracks. Local officials are more accountable to the electorate and will better manage these kinds of programs and initiatives while eliminating the massive overhead associated with a national program.

Even with all of these ideas and pontification, I don't have all the answers and there are probably unintended consequences I haven't even considered. What I do know, however, is that these segments of spending represent more and more of the GDP without solving the core issues they were designed to solve. We simply cannot continue on the current course towards financial insolvency.

(For more reading on the financial peril we're headed towards, check out this article from Business Week. Hat tip to Dan for pointing it out.)

4 Responses

The only HSA’s I’ve been offered or have set up for clients have been such that they reduce your taxable wages (awesome) but if you don’t use the money by the end of the calendar year, you lose it (not so awesome). That’s always kept me from wanting to use it.